After two years of recession, the German economy is still not showing signs of a sustainable recovery. While some indicators show slight improvements, the overall sentiment among companies remains largely negative. The current DIHK sentiment index, which captures assessments from more than 23,000 companies across almost all industries and regions, remains in the pessimistic range at 94.9 points. DIHK Chief Executive Officer Helena Melnikov warned during the presentation of the Economic Survey for early summer 2025 in Berlin: "None of our indicators are positive. The economic upswing we all wish for and that our country needs is still not in sight. The risks encountered by companies highlight the urgent need for action in economic policy."

 

Despite an encouraging first quarter due to advance effects, the risk of a recession, unfortunately, remains. The DIHK thus continues to expect a slight decline in GDP by 0.3 percent for 2025 overall. "This consolidates our fear that, for the first time in German post-war history, economic output will decline for the third consecutive year. We must do everything we can to ensure this is not a lost year," Melnikov said. The survey was conducted from late March to late April – before the inauguration of the black-red government. "The new federal government has a chance to prove itself now. The promised turnaround in economic policy must now also be felt in businesses. So far, companies are not yet experiencing any of it. Therefore, positive economic impulses must be provided quickly – before the summer break – businesses are waiting for them."

 

Economic policy framework conditions remain the biggest business risk

The importance of these signals is underscored by business risks. "The trust of the economy in politics is not a given," warns Melnikov. Regarding risks, companies again identified economic policy framework conditions as their biggest obstacle at 59 percent – a value that peaked earlier this year at 60 percent. Other business risks include domestic demand (57 percent) and labor costs (56 percent, record high). "High labor costs affect not only industries with above-average wages such as the industrial sector but also those with high personnel input, such as the hospitality industry," says Melnikov. "Rising social contributions and the legal minimum wage, with its impact, also play a role." Energy and raw material prices exacerbate the situation further. Among energy-intensive companies, 71 percent cite this as a concern.

Slight improvement in business expectations – but the overall situation remains subdued

"Although business expectations have slightly improved, they remain pessimistic overall," said Melnikov. The proportion of companies looking negatively into the future decreased from 31 to 26 percent, while the number of optimistic companies increased from 14 to 16 percent.

The sentiment regarding business conditions remains mixed. One-quarter of companies rate their situation as good, while an equal proportion consider it bad. "This is the lowest assessment of the situation since the coronavirus pandemic. Uncertainty about economic policy has led to caution among companies. Additionally, weak domestic economic activity, reduced foreign demand, and structural problems like a shortage of skilled workers, rising labor costs, and persistently high energy and raw material prices add to the challenge," DIHK top executive said. A glimmer of hope remains: The industrial and construction sectors, in particular, show signs of recovery and could again become driving forces for the German economy – provided that policymakers do everything to strengthen Germany as a business location through structural reforms. In particular, planning and approval processes in all areas must be expedited.
 

Exports losing momentum – investment plans remain weak

The latest DIHK survey illustrates that expectations of German enterprises for foreign trade have significantly weakened in early summer 2025. Helena Melnikov explains: "The German industry is losing international competitiveness and faces a challenging mix of factors. Particularly, the US tariff policy has dealt a severe blow to global trade and Germany's export prospects."

Given the uncertain overall situation, companies remain cautious about their investment plans in Germany. Almost one in three companies plans to cut back on investments, while just under a quarter intends to increase them. The resulting balance of investment plans, at minus seven points, has somewhat improved compared to the beginning of the year (minus ten points) but remains negative and significantly below the long-term average (plus three points). "Corporate investments are not gaining momentum," said Melnikov. "Without positive change here, there will be no self-sustaining recovery. Of the 900 billion euros invested annually in this country, almost 90 percent come from the private sector."

 

Against this backdrop, clear signals from politics are all the more important. "Concrete measures to accelerate procedures, reduce costs, and promote international partnerships are urgently needed. Examples, such as reducing electricity taxes to the European minimum level, immediately implementing a one-in-two-out rule to effectively combat bureaucracy, retroactively simplifying depreciation, and halving the transmission network charges, would all be feasible by the summer break. Only through a joint effort can we climb out of this trough and turn things around. The new federal government has the chance to act now."